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Nathans Finance falls over

Nathans Finance has become the fifth New Zealand finance company to collapse in the last two years after questions about its dealings with its parent company, VTL Group, which has also collapsed, and about VTL's proposal to "sell" its US operations for US$67.5 million ($96.8 million).

Monday, 20 August 2007

by Jenny Ruth

VTL advised the stock exchange today that it had defaulted on the terms of its trust deed, that it was stopping its prospectus and that the US$67.5 million transaction won't be able to proceed.

"In the opinion of the directors, this announcement concerning Nathans and the decision to withdraw Nathans' prospectus, will lead to a fundamental lack of confidence in Nathans which, in the current climate, will not be able to be recovered," VTL said.

"The value of Nathans will thus be seriously impaired, resulting in VTL ceasing, in the directors' opinion, to be solvent. VTL will accordingly need to cease to trade," it said.

New Zealand Exchange has accordingly suspended trading in VTL's shares - they last traded at 70 cents, their lowest price in a year, valuing the company at 25.7 million.

VTL's statement follows a report in the Sunday Star-Times questioning the value of $79.6 million in loans by Nathans to VTL contained in its June 2006 accounts. Those loans were due to be repaid by June 30 this year. In early June, VTL changed its balance date to August 31.

Nathans' total assets were shown as $172.3 million at June 30, 2006. As well as lending directly to VTL, Nathans' major purpose was to finance purchasers of VTL's franchises.

Nathans' accounts showed VTL owed it interest income of $13.3 million in the year ended June 2006, helping Nathans to report a nearly $5 million profit for that year, but that interest wasn't paid in cash. Nathan's operating cashflow that year was negative $5.8 million.

Writing in the Sunday Star-Times a week earlier, I questioned the description of the extremely complicated US deal as a sale. Followed through to its logical conclusion, the deal would have resulted in VTL retaining ownership of its US operations after a lot of pass-the-parcel type activity.

Another deal which would have allowed VTL co-founder Mervyn Doolan to sell his stake in VTL to interests behind the US "sale" for $6 million collapsed last week. Both Doolan and the other co-founder, John Hotchin, sold down their holdings in VTL earlier this year. Doolan's holding was sold from 28.31% to 22.52% while Hotchin's was sold from 27.64% to 20.56%.

COMMENT: Similarities between Nathans and Bridgecorp
So we have another finance company collapse. This time the relatively small Nathans Finance which has about quarter the amount of investor money as Bridgecorp. There are some interesting similarities and differences between the two. [READ ON]
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